Banking on fees

Complaints over these fees have long dogged the banking industry, and the proceedings of the Joint Select Committee on Finance and Legal Affairs – which met on Friday in open session – were a welcome opportunity for stakeholders to give information on their practices and for members of the public to get the information they need to exercise consumer choice.

Unfortunately, according to president of the Banking Association Anya Schnoor, there is no industry-wide standard when it comes to fees and charges. Instead, they are determined by individual banks’ pricing considerations. She said pricing considerations include operating costs and investment in technology, competitive product placement, influencing customer behaviour, and alternate channels available.

“Banks are not price-fixing, and fees and charges are reflective of the cost for providing the services,” she said. But while the lack of collusion is a good thing for a free market, it leaves consumers essentially at sea when it comes to making decisions on how to structure transactions. Individual banks may impose whatever fees they like. While in practice it seems the fees have not often been adjusted (Schnoor said they were adjusted three times over ten years) the fact remains that it is open to any bank to change its fees at a whim and to do so in a manner that does not offer price protection for a consumer.

Still, it is notable that some banks had no increases in fees over the last ten years and that fees have not kept up with inflation rates. Also, online and mobile banking options have remained free, though these come with increased levels of risk for the customer. And the perception of the consumer is that while fees are not rising, the scope of transactions that attract fees is already considerably wide. Very often the complaint is made that there is a fee at the turn of every door.

Still, compared to similar services provided by banks in the region almost all fee categories in TT were lower. Fees and charges represent seven to 11 percent of total revenue of all banks, and the banking sector’s profitability per customer and per account has declined over the last ten years, a fact that is likely to surprise some.

According to Schnoor there were many reasons for the decline in profitability with the main reason being, “tremendous increases in operating costs in all banks over the same period.” The firm also found, she said, that net interest margins in the banking industry are at their lowest levels in over a decade and all loan major categories, current interest rates are lower than they were a decade ago. Deposit rates have declined, directly due to a build-up of liquidity in the sector.

While deposits have grown from $50 billion to now over $110 billion in the last decade, the profitability in the banking industry has marginally increased by just 1.2 percent over the last decade with declines in key metrics such as return on assets and return on equity.

It is therefore likely that increases in banking fees as well as banks’ imposition of these fees on a wide range of transactions reflect the need for them to stay afloat in an economy that has not shown signs of true diversification from the ground up. If we complain about banking fees, we must complain about the structure of our overall economy too.

For now, we welcome this inquiry and look forward to further ventilation of the issues.